By Katherine Blunt and Russell Gold
PG&E Corp. isn't the only California utility facing
liability risks because of fires sparked by its equipment, as
disclosures this week by two of the state's other top utilities
show.
Shares of Edison International fell almost 5% Wednesday a day
after it reported that its Southern California Edison arm likely
sparked the 2018 Woolsey Fire, which burned nearly 97,000 acres in
suburban Los Angeles and killed three people.
The disclosure coincided with a Tuesday announcement by the Los
Angeles Department of Water and Power, the city's public utility,
said that the continuing Getty Fire in Brentwood likely started
when a broken tree limb blew onto one of its power lines.
California is in a state of turmoil, as fires burn in its
northern and southern regions, prompting mass evacuations.
To avert the risk of sparking further fires during strong winds
and avoid potential liability, some of the state's utilities have
shut off power to millions of people under an unusual state legal
provision.
The standard, known as inverse condemnation, holds that if a
power company's equipment starts a fire, it is responsible for
paying property damages, even if they aren't found to have been
negligent.
For an investor-owned utility such as PG&E and Edison, a
large fire could result in billions of dollars in liability costs
that could spook shareholders and strain its balance sheet.
A municipal utility like LADWP has more discretion to pass on
liability costs to customers in the form of rate increases for
homes and businesses.
"You could do everything right and follow every standard, do all
the maintenance and inspections, go above and beyond. And if
something happens, you are still on the hook for liability," said
Brad Kuhn, a partner with the Los Angeles-based law firm Nossaman
LLP.
Proponents of inverse condemnation argue that the standard has
the potential to hold utilities accountable for system maintenance
and offers some financial protection for property owners and
insurers in high-risk areas.
California lawmakers have debated changing the legal provision,
and utilities have pushed for changes. But so far, legislators have
been unwilling to alter it, which would likely require a two-thirds
vote of the legislature and state-voter approval as a
constitutional amendment.
State Sen. Bill Dodd, who represents Napa County, said lawmakers
will need to consider modifying the liability standard as part of a
series of reforms meant to change how utilities invest in their
power grids.
"We're going to have to be looking at everything," the Democrat
said.
PG&E Corp. has started more California wildfires than its
peers in recent years and has also conducted larger pre-emptive
blackouts this year, as it races to trim trees and shore up its
aging transmission and distribution lines. But all of the state's
utilities are struggling with similar issues posed by the risk of
fires.
Edison International had previously booked a $1.8 billion
after-tax charge related to the Woolsey fire in the fourth quarter
of 2018 earnings. On Tuesday, as it disclosed likely responsibility
for the fire, Edison said that charge was on the "lower end" of the
range of estimated losses.
PG&E earlier this year sought bankruptcy protection, citing
$30 billion in liabilities from fires in 2017 and 2018. It has told
state officials that a high-voltage transmission line malfunctioned
shortly before the beginning of the continuing Kincade Fire in
Sonoma County. A final determination of the fire's cause could take
months.
The threat of greater liability costs spurs utilities to reduce
fire risk by any means, including blacking out swaths of their
service territories when strong winds are forecast, said Jared
Ellias, law professor at UC Hastings College of the Law in San
Francisco. He said the resulting turmoil could spur lawmakers to
rethink how liability costs are assigned.
Utilities say they want state courts to overturn or at least
soften inverse condemnation. But the U.S. Supreme Court recently
turned down an appeal by San Diego Gas & Electric, a unit of
Sempra Energy, aimed at challenging this policy.
"There is a broad consensus that inverse condemnation law in
California is broken," PG&E lawyers wrote in a brief to the
bankruptcy court last week, asking the federal judge to rule that
inverse condemnation doesn't apply to PG&E or any
investor-owned utility.
While California's large utilities, public and investor owned,
face liability risks, PG&E stands out for the number of fires
it has caused. PG&E, which serves a much larger area than the
state's other utilities, started 433 fires in 2018, many of them
small and quickly extinguished, according to data they are required
to file with state regulators. Southern California Edison reported
starting 108 fires. The Los Angeles municipal utility wasn't
required to report this data.
LADWP spokeswoman Ellen Cheng said she didn't want to speculate
about whether the utility would face liability from the Getty
Fire.
"LADWP's lines were intact, and our system didn't fail," she
said. "This is one of the challenging questions the state is
grappling with now."
Write to Katherine Blunt at Katherine.Blunt@wsj.com and Russell
Gold at russell.gold@wsj.com
(END) Dow Jones Newswires
October 30, 2019 19:16 ET (23:16 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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